‘Trojan Horse’ Budget

December 19, 2015, 5:56 pm

by Piyavi Wijewardene

First and foremost, it must be stated that, there are many positive features in the proposed 2016 budget and they have been sufficiently discussed and extensively analyzed. However, the biggest issue that popped out in my eyes is whether the boasted about title announcements can be justified with the underlying sub statements, particularly in the areas of Agriculture, SME’s, Exporters, Environmental,Sustainable Development and Unemployment.

Consider this - even though the government announces, that it intends to predominantly focus on the eco-development and agriculture sector, it is apparent that the right measures have not been taken. Furthermore, the pragmatic field and grassroots situations have not been recognized. However even that has also been adequately debated many times through the print and electronic media.

More to the point which I wish to highlight, the latest budget has proposals that would give an enormous boost to substandard Indian businesses both directly and indirectly. You may ask "What of it?". The fact is that some of these policy decisions will result in a massive elimination of local SME’s and exporting companies from the competition in the long-run on the one hand, and a great increase in Indian companies, commodities and employees in the country, on the other. Let me explain.

The government says that they have facilitated foreign investments by removing taxes imposed on the leasing of land to foreigners and removing all restrictions on ownership of identified investments imposed through the Land Restriction on Alienation Act. Isn’t it clear, which foreigners’ segment they are focusing on?

It is highly unlikely that this policy significantly benefits high capacity, super gain, re-exportable FDI’s, especially FDI’s from developed countries. Rather these policies facilitate small and medium scale Indian companies to cultivate in Sri Lanka and to eventually force out the local SME’s from competition. By enjoying the concessions provided by the budget, Indian FDI’s can dominate the Sri Lankan market by eliminating thousands of local SME’s, given the scale and technological advancement of the Indians.

Indian workers could also find much land space in Sri Lanka thanks to current policies. Therefore, many ongoing jobs and vacancies could be threatened due to these shifts. High unemployment pressure in India and the lower salary expectation of Indian workers, could lead Indian migrants to invade more job opportunities, which are available for Sri Lankan people.

In addition, even a child could understand that the 2016 budget’s taxing policies on vehicles have also facilitated Indian manufactured vehicles over eco-friendly hybrids and electric vehicles. When every government on earth is riding towards an environmental-bias, the Sri Lankan government is riding towards an Indian-bias.

Even though the government has refrained from formal and open negotiations on CEPA with India, it seems that they have taken indirect actions under the capsule of ‘’Attracting FDI’s’’, to enlarge the current Free Trade Agreement (FTA) condition it to a Common Market condition, which is a hidden CEPA situation.

The above points lead us to another question. What policies can governments pursue to attract foreign direct investment, expand their economies, and accelerate job creation? What do multinational companies, other investors, and development agencies need to know before making large-scale, long-term capital commitments?

According to the Global Opportunity Index’s standards, it is believed that Economic Fundamentals features such as macro performances, quality of labour force and physical infrastructure, Quality of Regulations/Regulatory Barriers to Investment and Rule of Law features such as legal infrastructure, protection of property and investment rights factors, Accounting and Disclosure requirements, Cost of Terrorism and Crimes and Cost of Resolving Insolvency, are crucial to attracting the desired level of FDI’s.

Nevertheless, by only considering factors such as the tax burden and the cost of starting a business, the government is either intentionally, or unintentionally attracting small and medium scale companies of developing nations, mostly Indians.

When signing bi-lateral trade agreements, a government has a responsibility nay a duty, to ensure that such agreements are beneficial to their citizens, as far as is possible.

However, in the case of the economic relations with India, it would seem evident that the Government of Sri Lanka has attempted to slip CEPA in through the backdoor of Budget 2016.